‘Complexity’ Predicts Nations’ Future Growth

Economists at Harvard University and Massachusetts Institute of Technology have just released what they claim to be the crystal ball of economics: a model for predicting a nation’s future growth more accurately than any other techniques out there.

“The Atlas of Economic Complexity” ranks 128 nations based on their “productive knowledge” — the skills, experience and general know-how that a given population acquires in producing certain goods. Countries with a high score in the report’s “economic complexity index” have acquired years of knowledge in making a variety of products and goods and also have lots of room for growth. Essentially, the more collective knowledge a country has in producing goods, the richer it is — or will be.

The 364-page report, a study led by Harvard’s Ricardo Hausmann and MIT’s Cesar A. Hidalgo, is the culmination of nearly five years of research by a team of economists at Harvard’s Center for International Development.

“The essential theory … is that countries grow based on the knowledge of making things,” Mr. Hausmann said in a phone interview. “It’s not years of schooling. It’s what are the products that you know how to make. And what drives growth is the difference between how much knowledge you have and how rich you are.”

Thus, nations with extensive productive knowledge but relatively little wealth haven’t met their potential, and will eventually catch up, Mr. Hausmann said. Those countries will experience the most growth through 2020, according to the report.

That bodes well for China, which tops the list of expected growth in per-capita gross domestic product. According to the method outlined in the report, China’s growth in GDP per capita will be 4.32% though 2020. India and Thailand are second and third, respectively.

The U.S., however, is ranked 91, with expected growth in per-capita GDP at 2.01%. “The U.S. is very rich already and has a lot of productive knowledge, but it doesn’t have an excess of productive knowledge relative to its income,” Mr. Hausmann said.

The method, when applied to the years 1999-2009, proved to be much more accurate at predicting future growth than any other existing methods, including the World Economic Forum’s Global Competitiveness Index, according to the report.

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